Case Study 1: Director’s personal guarantees
We were referred an individual who had received a demand from a bank for £300,000 under a personal guarantee following the liquidation of his business. We were engaged to negotiate a full and final settlement on this liability.
On engagement, we wrote to the bank requesting the supporting documentation in relation to this claim in order that we could perform due diligence and ensure all was in order. To our surprise, we received several personal guarantee documents which totaled £1.8m.
Given our collective banking experience, we knew that it is standard banking practice to retain personal guarantee documents on file long after the debt is repaid and the accounts closed, so we took the view that the bank had so far only demonstrated they held security. We requested proof of debt in the form of the relevant Facility Letters and bank statements and a large bundle of documents were delivered to our office.
After spending a significant amount of time carefully going through the documents, we realised that none of them were connected and initiated a discussion (by letter) with the bank around the legal points which highlighted the weakness of their position.
After 6 months of this, a rather frank and open telephone conversation occurred where we laid out the futility of their position should they decide to litigate. Our client wished to avoid a protracted litigation and as such, we made an offer in full and final settlement (and without acknowledgement of any liability on the part of our client) for £10,000. After considering our arguments, the bank made a counter offer of £20,000 which our client duly accepted.
Claim = £1,800,000
Settlement = £20,000
Saving = £1,780,000 (99%)
Case Study 2: A company avoids insolvency
We were referred to a company who was in dispute with one of their trade creditors who were about to crystalise a £942,000 debt on their balance sheet. Should this have happened, this would have made the company insolvent and would have been liquidated.
The impact of this debt would have had further consequences as it would have resulted in the failure of 2 connected businesses and the loss of a number of jobs. Furthermore, the director had provided a personal guarantee of £250,000 which would have resulted in his bankruptcy should it have been called upon.
We were duly engaged by the client company to negotiate a full and final settlement to avoid insolvency.
We analysed the financial situation of both the business and director and presented a commercial argument based around the likely outcomes of litigation. The creditor eventually accepted the sum of £264,000 in full and final settlement of all outstanding liabilities and duly released the director from his personal guarantee.
Claim = £942,000
Settlement = £264,000
Saving = £678,000 (72%)